Hedge fund bulls left the oil market and sold at the fastest speed in over a year!

Golden10 Data ·  May 17 17:10

As geopolitical risk premiums weakened and the market showed signs of sufficient supply, fund managers' long crude oil positions fell the fastest since March 2023 last week.

Traders cut their bullish bets on crude oil last week at the fastest pace in more than a year as geopolitical risk premiums continue to fall and there are signs of sufficient supply in the regional oil market.

As fund managers liquidated their long positions, net long positions in crude oil (the number of long positions investors held minus the number of short positions they held) fell to their lowest level in three months, and also triggered technical sell-offs, causing the price of Brent crude oil to once drop to a low of $80 per barrel, while the US benchmark WTI crude oil price fell below $80 per barrel.

According to exchange data compiled by Reuters columnist John Kemp (John Kemp), in the latest reporting week ending May 7, fund managers were net sellers of crude oil and fuel futures and contracts, and the net sales volume of the six most important futures and options contracts was equivalent to 143 million barrels.

Brent crude oil and WTI crude oil long positions declined the most, but US gasoline and European diesel derivatives contracts also sold off.

Ole Hansen, head of commodity strategy at Saxo Bank, wrote in an analysis of the latest commodity positions this week that in the week ending May 7, crude oil long positions declined the fastest since March 2023.

The energy sector continued to experience sell-off due to the liquidation of long positions, leading to technical sell-offs in crude oil and fuel contracts. Of all commodities, the sell-off was mainly focused on crude oil, diesel and RBOB gasoline, Hansen added.

The combined net long positions of Brent crude oil and WTI crude oil fell to 378,000 lots, the lowest in 3 months.

ING commodities strategists Warren Patterson and Ewa Manthey wrote in a report this week: “Speculators drastically cut their net long positions on ICE Brent crude oil in the last reporting week. As of last Tuesday, speculators had sold 60,125 lots, with a net long position of 260,648 lots. This trend was mainly due to the closing of long positions.”

“NYMEX WTI crude oil also experienced a massive sell-off. The speculators' net long positions decreased by 5,5038 lots to 117,651 lots, the lowest level since February,” they added.

Strategists said that in the week ending May 7, European diesel also experienced a large amount of speculative sell-off, as the market's view on intermediate distillates became more pessimistic.

At the beginning of April, due to the tense situation in the Middle East, the sentiment of hedge funds and other fund managers changed from moderately bullish to highly bullish; in early May, as the conflict between Iran and Israel eased, the oil inventory trend began to show that the market was more relaxed than previously anticipated, and the sentiment of hedge funds and other fund managers turned bearish.

A month ago, in the week ending April 9, net longs for WTI crude oil and Brent crude reached six-month highs. Since the beginning of December last year (the Houthis began attacking Red Sea merchant ships), net long positions on Brent crude oil have tripled. Brent crude is the most vulnerable international crude oil to geopolitical events.

At the beginning of April, analysts did not rule out the possibility that oil prices would rush to $100 per barrel, but they pointed out that oil prices would only soar to three digits if the situation in the Middle East escalated further and the region's oil supply was directly threatened.

A month later, with the geopolitical risk premium falling, the price of oil at $100 per barrel seemed a long way off. At the end of April, after Israel and Iran chose not to escalate the standoff, hedge funds and other fund managers began selling long positions on the most important oil contracts.

Furthermore, in the US, commercial crude oil and fuel reserves increased in late April and early May, prompting traders to sell more long positions as global market inventories looked more pessimistic than expected.

The translation is provided by third-party software.

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